I recently went on a golf trip with some buddies at the Ritz-Carlton resort in Orlando, Fla. And a lesson I learned on the links relates to this wildly swinging market - to a "T."
My longtime readers know that I absolutely like playing the maddening game of golf. (Note: I did not say "love.") That slightly tempered affection comes from the fact that, for years, I never used my driver - years.
It was too much club with too little control, and in a precise game like golf, that spelled trouble. I'd line up my shots, wind into my picturesque backswing, and torque down into the impact position.
All good, right? Well, not for me. The result was a big move with no control. And I can't even begin to tell you the number of golf balls I lost trying my damnedest to get good with my driver.
So a month ago, when I was doing a loop at the Ritz-Carlton, I was grouped with a father and his son - both clearly better than me. After 12 holes, he took note that I hadn't used my driver.
I gave him the same explanation as above, "Big moves, no control."
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He walked up to my bag, took out the driver, and inspected the back of the head before flashing a little, knowing smile.
Before I knew it, he whipped out a tool from his own bag and went to work. He was silent and studious as he tinkered with my driver. Then, after about three minutes of ratcheting and adjusting weights, Dave - that's his name - handed the club to me.
I thought to myself, "There's no way that off-the-cuff, three-minute tinkering is going to get me in the short grass."
Then, bam! 250-275 yards right down the middle. So much for unlucky number 13.
Next hole, bam! As if I had hit the thing on a rope. And so on and so forth.
The subtle changes to the club made all the difference in the world. Suddenly, I was pondering about joining the Pro-Am tour. That's the kind of moment I think all golfers have after a great stretch: "Holy cow, I am good!" (That's almost always a misguided thought.)
Anyway, you might be wondering why the hell I'm telling you this story. And no, it's not just to brag about being able to hit John Daly--style drives now.
I'm telling you this story because before Dave's tinkering, my driver and I were a lot like this market: big moves, no control.
Let me explain what I mean...
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It's Time to Tinker and Adapt
There's no better indicator of "big moves, no control" than the S&P 500's movements last week. From week high to week low, the broad-market index covered a whopping 240 points. That's an 8.6% move - and the market was closed for a day.
What's more, the S&P 500 has more than knocked out its gains for the year. At this point, it's down more than 2% year to date.
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And that means it's time to make adjustments. So, as the market changes and shifts in tone, we'll need to be nimble. A lead-footed trader is no better than a lead-footed swimmer.
Two of the biggest changes I'm seeing right now are volume and traders' reactions to rallies. Simply put, buyers just aren't in this market for long stretches. These selling sprees over the last couple of weeks make it clear that investors have zero interest in holding onto stocks for the long haul.
So, I'll "tinker" and adapt to these big swings and dwindling volume by opening new hedged positions on the market. But as my longtime readers know, I remain bullish in the long term.
Right now just isn't the time to buy calls and stocks by the armfuls because, quite simply, we still haven't hit the bottom yet. In fact, I don't even think we're close.
I'd say we have more big swings lower - even lower than we currently are. We're just not seeing the kinds of readings we need from volume and volatility.
Believe it or not, both are still too low.
But more on that next time.
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About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.